Forex Street

WHAT IS FOREX CURRENCY TRADING?

If
you read about investing, you've seen the word forex tradingg. But because forex doesn't get much
publicity in the major publications and websites, many investors don't
know that forex is just short for "foreign exchange". So trading the
forex market is simply trading foreign currencies.

As recently as ten years ago, currency trading had
high barriers to entry, so only large banking and institutional firms
had access to the tools and systems required to play in the
forex trading game. Recently, however, technology has developed
to the point that any individual investor can hop right in and trade
with one of the many online platforms.

When buying and selling in the forex currency
trading system market, you'll see that there are four "currency
pairs" that dominate the percentage of trades. Those four are the Euro
vs U.S. Dollar, US Dollar vs Japanese Yen, US Dollar vs Swiss Franc, and
US Dollar vs British Pound.

The goal when investing in currency is to be holding a
currency that appreciates in value in relation to the other currencies.
To use an overly simplistic example, if you bought 50 British Pounds for
100 US Dollars, held the Pounds for 1 week, and in that period the value
of Pounds increased in relation to US Dollars, you could then convert
those Pounds back into dollars for, say, $120.

Unlike the domestic stock markets, the forex
currency trading is open for trades 24 hours a day. Much like
the phrase "it's always noon somewhere," it's always business hours at
some region of the globe. Since every country trades on the FX market,
and it's open all day, the daily volume is roughly $1.2 trillion, which
dwarfs that of the NYSE. Another comparison to make in order to truly
realize the magnitude of the forex market is with the currency futures
market (which has around 1% of the daily volume).

One other important distinction to make is that forex
currency trading is not centered on an exchange like the NYSE or NASDAQ.
There is no central body or organization required to act as middleman.
Trading circulates between major banking centers around the world.

Until recently, there were strict financial
requirements and massive minimum transaction sizes which prevented
individual investors from trading. But with the advent of the internet
came the FX brokers. A forex currency broker is similar
to an online stock trading account such as etrade.

Anybody can open an account and buy and sell in any
quantity. Because the brokers have thousands of investors placing orders
through them, they are able to meet the large minimum transaction size
by purchasing in large blocks and distributing currency amongst the
purchasing investors.

Although it is now easy to start trading forex,
it is a complicated and complex market. While it offers fantastic
opportunity for wealth, it is also very easy to lose your shirt in a
hurry. Before trading forex, do your homework and read as much as you
can find before investing your hard earned money.